Is a “Fair Tax” or a “Flat Tax” better? The answer is both are better than what we’ve got now. But real tax reform is wishful thinking. As Stephen Moore of The Wall Street Journal writes:
On Thursday Senate Finance Committee Chairman Max Baucus of Montana and ranking Republican Orrin Hatch of Utah unveiled their sweeping tax reform plan. It’s eloquently simple—a blank-slate, literally. But is it a gimmick? And what are the prospects this year for reform?
The plan starts with the presumption that the tax rate on individual filers and corporations will be shaved to as low as possible, perhaps down to 20% (from 39.6% for individuals and 35% on corporations), and that all deductions and carve outs will be eliminated. The senators stress that tax expenditures and other provisions should be added back only if they help expand the economy, make the code “fairer” or advance important policy objectives.
To some, this is unworkable. To others, it’s a brilliant strategy to put the onus on special interest lobbies to justify their favored treatment. The “blank slate” idea is meant to show the trade-off between deductions and tax rates. “Every $2 trillion of individual tax expenditures that are added back would, on average, raise each of the seven individual income tax brackets by between 1.3 and 2.2 percentage points from what they would be under the blank slate,” the letter states. “Likewise, every $200 billion of corporate tax expenditures that are added back would, on average, raise the top corporate income tax rate by 1.5 percentage points.”
Tax reform advocates, like Americans for Tax Reform, say they strongly support the notion the senators put forward of broadening the tax base and lowering the rate. But skepticism abounds. One Senate tax aide tells me, “I’m afraid senators will line up to defend a lot of the worst and most expensive deductions in the code, in order to score points with special interests. Who is going to vote against them?”
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